Deepening Understanding of Business Processes Essential for Effective Compliance

In a recent report, the importance of deepening understanding of business processes has been highlighted as a critical step towards effective compliance. Regulatory compliance is no longer just about checking boxes; rather, it’s about ensuring that banks have a robust and risk-based approach to managing their operations.

The Need for Change

To achieve this, financial institutions are being urged to transform their compliance function by adopting a more integrated and holistic approach that takes into account the broader risks facing the organization. This includes:

• Developing a single inventory of operational and compliance risks
• Coordinating risk assessment and remediation methodologies across different functions
• Integrating compliance and risk management functions

The Benefits of Integration

The report highlights the benefits of integrating compliance and risk management functions, including:

• Facilitating an integrated view across all risk types
• Ensuring that compliance is viewed as a control function rather than an advisory one

Measuring Progress

To measure progress on this journey, the report suggests using a ten-point scorecard that includes criteria such as:

• Demonstrated focus on the role of compliance within the organization
• An integrated view of market risks with operational risk
• Clear tone from the top and strong risk culture

The scorecard is designed to help banks assess their progress towards achieving a more effective compliance function.

Conclusion

Successful implementation of these changes will enable banks to:

• Deliver better service
• Reduce structural costs
• Significantly de-risk their operations

In an increasingly complex regulatory environment, banks that fail to transform their compliance function risk falling behind their peers and failing to meet the evolving needs of customers.

Key Findings

• Deepening understanding of business processes is critical for effective compliance
• Integration of compliance and risk management functions is essential for a robust approach to managing operations
• Organizational structure changes, such as integrating compliance into the risk organization, can facilitate an integrated view across all risk types
• A ten-point scorecard can be used to measure progress towards achieving a more effective compliance function
• Successful implementation of these changes will enable banks to deliver better service, reduce structural costs, and significantly de-risk their operations.